“1)
Union Pacific Railroad reported net income of $770 million after interest expenses of
$320 million in a recent financial year. (The corporate tax rate was 36
percent.) It reported depreciation of $960 million in that year, and capital
spending was $1.2 billion. The firm also had $4 billion in debt outstanding on
the books, was rated AA (carrying a yield to maturity of 8 percent), and was
trading at par (up from $3.8 billion at the end of the previous year). The beta
of the stock is 1.05, and there were 200 million shares outstanding (trading at
$60 per share), with a book value of $5 billion. Union Pacific paid 40 percent
of its earnings as dividends and working capital requirements are negligible.
(The Treasury bond rate is 7 percent.)

a. Estimate the FCFF for the most
recent financial year ?
b. Estimate the value of the firm
now ?
c. Estimate the value of equity
and the value per share now ?

2)
You
are considering buying a new car. The
sticker price is $15,000 and you have $2,000 to put toward a down payment. If you can negotiate a nominal annual
interest rate of 12 percent and you wish to pay for the car over a 5-year
period, what are your monthly car payments?

3)
During the past few years, Swanson Company has retained,
on the average, 70 percent of its earnings in the business. The future retention rate is expected to
remain at 70 percent of earnings, and long-run earnings growth is expected to
be 10 percent. If the risk-free rate, kRF,
is 8 percent, the expected return on the market, kM, is 12 percent,
Swansons beta is 2.0, and the most recent dividend, D0, was $1.50,
what is the most likely market price and P/E ratio (P0/E1)
for Swansons stock today?

4)
You
have just been offered a $1,000 par value bond for $847.88. The coupon rate is 8 percent, payable
annually, and annual interest rates on new issues of the same degree of risk
are 12 percent. You want to know how
many more interest payments you will receive, but the party selling the bond
cannot remember. Can you determine how
many interest payments remain?
1)
Union
Pacific Railroad reported net income of $770 million after interest expenses of
$320 million in a recent financial year. (The corporate tax rate was 36
percent.) It reported depreciation of $960 million in that year, and capital
spending was $1.2 billion. The firm also had $4 billion in debt outstanding on
the books, was rated AA (carrying a yield to maturity of 8 percent), and was
trading at par (up from $3.8 billion at the end of the previous year). The beta
of the stock is 1.05, and there were 200 million shares outstanding (trading at
$60 per share), with a book value of $5 billion. Union Pacific paid 40 percent
of its earnings as dividends and working capital requirements are negligible.
(The Treasury bond rate is 7 percent.)a. Estimate the FCFF for the most
recent financial year ?b. Estimate the value of the firm
now ?c. Estimate the value of equity
and the value per share now ?2)
You
are considering buying a new car. The
sticker price is $15,000 and you have $2,000 to put toward a down payment. If you can negotiate a nominal annual
interest rate of 12 percent and you wish to pay for the car over a 5-year
period, what are your monthly car payments?3)
During the past few years, Swanson Company has retained,
on the average, 70 percent of its earnings in the business. The future retention rate is expected to
remain at 70 percent of earnings, and long-run earnings growth is expected to
be 10 percent. If the risk-free rate, kRF,
is 8 percent, the expected return on the market, kM, is 12 percent,
Swansons beta is 2.0, and the most recent dividend, D0, was $1.50,
what is the most likely market price and P/E ratio (P0/E1)
for Swansons stock today?4)
You
have just been offered a $1,000 par value bond for $847.88. The coupon rate is 8 percent, payable
annually, and annual interest rates on new issues of the same degree of risk
are 12 percent. You want to know how
many more interest payments you will receive, but the party selling the bond
cannot remember. Can you determine how
many interest payments remain?”